What to do if you get an IRS letter
Hudson Valley Tax Experts assists taxpayers with IRS and state tax issues, from responding to letters and handling audits to preparing unfiled returns and negotiating payment arrangements. IRS and the states rely heavily on mail correspondence to conduct their business.
There's nothing quite like opening your mailbox and finding a letter from the IRS to raise your blood pressure and quicken your breath. The IRS is not known for sending cheery notes (“hey, hope you’re having a great summer, thinking of you!”) and if you find that an IRS return address beings on a feeling of dread, you’re not alone.
It may seem obvious, but the first step on discovering that unwelcome visitor in your mailbox is: don’t panic and open the envelope. (Okay, that’s two steps, but they go hand in hand. Call them 1A and 1B. You can add 1C: take a deep breath.) Resist the urge to file the unopened letter in the sock drawer or bury it in the garden. Whatever news it contains, good or bad, is going to remain true whether you read it or not.
I should stress here that when IRS sends a letter, they use the good, old-fashioned Postal Service. They will never send you “letters” as email attachments. They also will not contact you by text message or Facebook messenger, nor will they be calling you to demand an immediate payment. (Think about all those police dramas you’ve seen – calling a suspect to inform them of an impending arrest never happens.) If you receive any of those types of communication, pause and take a moment to remember this: if IRS didn’t contact you by mail, it’s a scam. (Okay, IRS criminal investigators might show up at someone’s door unannounced and in person, but simply owing taxes or making a mistake on your return is not a criminal matter.)
The second step, perhaps equally obvious if painful, is: read the letter. While the IRS is not always the clearest of correspondents, many letters have an executive summary on the left side of the first page which will give you the gist. In other letters, the first paragraph usually outlines the reason they are writing.
Remember that IRS sends many types of letters, not all of them bad news. The letter may simply be informational -- sometimes the IRS will adjust a return automatically. This could be in your favor; for example, as I write this, IRS is busily adjusting returns for people affected by the American Rescue Plan – recalculating taxes on employment, stimulus payments, and health insurance subsidies. They are also sending information on the upcoming advance child tax credit payments to people who might be eligible. (More about those in a future post.)
Third, does the letter require any action on your part? If the IRS has adjusted your return, you should verify it’s correct. IRS is not infallible and can make mistakes. A mistake might be in your favor, which you’re not obligated to point out, but if their mistake costs you money, it’s likely to your advantage to get it corrected.
A notice of proposed changes to your return is a different story. This often result when the IRS has received information from a bank or employer that doesn't seem to match what was reported on your return. These should be investigated promptly: is their information correct? Is the recalculated tax accurate? Do the changes affect your state tax return? Even if the information and recalculation is correct, responding promptly will minimize any additional interest or penalties.
There are many other routine reasons you might receive a letter. IRS may need more information to process your return or may need to verify your identity. Sometimes they will send a letter simply to tell you there will be a delay in processing your return or correspondence.
Of course, the letter might be because you owe some taxes you have not paid. That’s an important reason, and one the IRS is not likely to forget about, no matter how deep you dig the hole in the tulip bed. I’ll talk about your options when you owe the IRS in a future post, but for now this leads me to:
If the letter requires a response or involves taxes you owe (or might owe), I recommend letting your tax preparer know what you’ve received. To be honest, it’s a good idea to keep your preparer informed about any IRS or state correspondence. Every practitioner works differently, but most will at least translate a letter into English for you without an additional charge. If you don’t have a preparer (or can’t reach them), consider finding one to consult.
There may be a fee involved (again, every practitioner operates differently) but any fee for simply interpreting your letter should be minimal. A professional can advise you on what IRS is saying, what you need to do in response, and they may be able to handle the issue for you. However, before paying someone to handle the response, make sure they are an Enrolled Agent (EA), CPA or attorney – only these professionals can fully represent you before the IRS. Other preparers can advise you or write letters for you but cannot directly intercede on your behalf.
Finally, respond if a response is required. Pay attention to any deadline and take that seriously. Missing deadlines can be an expensive mistake.
In summary: don’t ignore the letter, make sure you understand what it’s telling you, and send any required respond within the allotted time. An IRS letter may not be fun to receive but ignoring one will never make it better. The sooner you can get the issue resolved, the sooner you can go back to enjoying your summer.
If you or someone you know needs help with an IRS or state letter or other tax issues, please contact me at either 845-669-0044 or email tom@hvtaxepxerts.com
Thomas Bridgman, EA
4 Marshall Rd #193
Wappingers Falls NY 12590
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